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How poll verdicts raise uncertainty for FDI in retail

Last updated on: December 10, 2013 11:29 IST

How poll verdicts raise uncertainty for FDI in retail

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Nivedita Mookerji in New Delhi

The legislative Assembly poll verdict against the Congress has lead to more apprehension among foreign retail brands.

The governments of Delhi and Rajasthan, top destinations for international retail chains, were among the first to say yes to allowing these after the Cabinet permitted up to 51 per cent foreign direct investment in multi-brand chains last year.

The policy let each government decide if foreign chains could roll out there.

No foreign multi-brand retailer has launched or even filed an application to operate in India yet.

Yet, after the voters’ kick to the governments in these two places, there is apprehension on what lies ahead.

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Image: Supporters of Arvind Kejriwal, leader of the newly formed Aam Aadmi Party, celebrate after Kejriwal's election win.
Photographs: Anindito Mukherjee/Reuters

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When French retail chain Carrefour started its cash-and-carry or wholesale outlet (100 per cent FDI is permitted in this segment) in Jaipur two years earlier, business was disrupted and the store was set on fire by opposition parties.

The Bharti-Walmart wholesale store in Kota, also in Rajasthan, had also come under attack in 2011, by those opposed to foreign chains in this segment.

Bharti-Walmart, Carrefour and Metro, all international retail chains, operate cash-and-carry stores in Rajasthan.

Delhi, where the Bharatiya Janata Party has got the highest number of seats in the new Assembly but not enough to form a majority on its own, has two foreign wholesale chains -- Metro and Carrefour.

The BJP has opposed FDI in multi-brand retailing, saying this would impact local traders, resulting in job losses.

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Image: A cleaner pushes a trolley as customers eat at the foodcourt of a shopping mall in Mumbai.
Photographs: Vivek Prakash/Reuters

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In its election manifesto for 2013, the Rajasthan BJP had promised a new investment policy for businesses, without making any reference to entry of foreign retail.
      
Experts say whoever forms the government at the Centre after the 2014 Lok Sabha elections would need to look for a pragmatic retail foreign direct investment policy.

The second half of the next calendar year is seen as the earliest for any action on foreign investment in the retail sector, says Arvind Singhal, founder and chairman Technopak Advisors, a consultancy in this area.

The existing retail policy, with all the riders attached, is the biggest hurdle for those wishing to come in, he said; a state-by-state nod comes after that.

A representative of a global retailer wanting to set up shop in India said, “There’s no way that anybody is moving on any investment till the general elections.”

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Image: Supporters of Bharatiya Janata Party wave party flags as they celebrate outside the party's headquarters in Ahmedabad.
Photographs: Amit Dave/Reuters

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Many other investor-friendly states, in favour of FDI in multi-brand retail, are also election-bound in 2014.

For example, the Congress-ruled states of Andhra Pradesh, Maharashtra and Haryana will face assembly polls in 2014, a factor seen as an uncertainty for international retailers.

Of the five states were Assembly elections concluded last week, the Congress won only in Mizoram.

The BJP got Madhya Pradesh, Rajasthan and Chhattisgarh.

In Delhi, it is a little short of a majority.  

Karnataka and Himachal Pradesh had, a few months earlier, been added to the list of states that said Yes to FDI in multi-brand retail.

This list has Maharashtra, Andhra Pradesh, Haryana, Manipur, Assam, Karnataka, Himachal Pradesh, Uttarakhand, Jammu & Kashmir, Daman & Diu, Dadra and Nagar Haveli.

It had Rajasthan and Delhi but these might now go the other way.


Image: Customers shop at a shopping mall.
Photographs: Bazuki Muhammad/Reuters

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